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According to the Commission’s proposals, VAT will now be charged on cross-border trade between businesses. Currently, this type of trade is exempt from VAT, providing an easy loophole for unscrupulous companies to collect VAT and then vanish without remitting the money to the government.It will be simpler for companies that sell cross-border to deal with their VAT obligations thanks to a ‘One Stop Shop’ (OSS).

Traders will be able to make declarations and payments using a single online portal in their own language and according to the same rules and administrative templates as in their home country. Member States will then pay the VAT to each other directly, as is already the case for all sales of e-services.The Commission also proposes a move to the principle of ‘destination’ whereby the final amount of VAT is always paid to the Member State of the final consumer and charged at the rate of that Member State.

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The fierce debate on a fair distribution of tax revenues by governments has reached new heights. Tax shift due to risk allocation of transactions to low tax rate countries and even globalization itself are under political discussion. Protectionism is an important part of the strategic objectives of certain governments.

Additionally, the discussion concerning BEPS and state aid have caused fiscal uncertainties that force companies to reevaluate risks. In some cases this can even lead to changes in the business model. Current business models are put under a magnifying glass, but also the change of business models – for instance from commissionaire to limited risk distributor – will get attention from the tax authorities.

A reorganization in the Dutch Tax and Customs Administration has established the objective that routinely and labor-intensive, yet relatively simple control activities are to be taken over by automated processes. That is, modern technologies appear to substitute to role of the ‘traditional’ tax auditor.

The idea is that new computer systems and data analysis software will allow data files from different source systems to be connected, thereby enabling more efficient tax control and requiring fewer ‘traditionally educated’ employees.

The objective also holds that the tax authorities have earlier and faster access to relevant tax data and that this data is periodically provided by tax payers in a format that is prescribed by the government and that can easily be read and immediately reveal inconsistencies in fiscal activities.

Transfer pricing and/or VAT regulations are still not sufficiently taken into account in the development of VAT-automation regarding business processes. This makes that the data that is captured in a vast amount of financial administration, can ‘impossibly’ be compared with that which is stated on the tax returns.

Complementary to the existing and more traditional tax reporting in countries like Austria, France, Lithuania, Luxembourg, Norway, Poland, Portugal, Spain already (close) to real time data request have to be submitted and/or should be available on short notice when a tax audit is announced.

In countries like Austria, France, Lithuania, Luxembourg, Norway, Poland, Portugal, Spain already (close) to real time data request have to be submitted and/or should be available on short notice when a tax audit is announced.

What is next?

Italy, the VAT invoices data informative reports must be filed with the tax authorities on a six-monthly starting by September 18, 2017. From 2018 the deadlines will be on a quarterly basis. For Hungary realtime invoicing is postponed to 1 July 2018. Companies need to have to solution implemented that is capable of real time data transfer by 1st of July 2018 at the latest.

It is however not clear how the tax authorities actually will analyse the data received. That might change soon as their strategy is an improved and faster tax audit including combatting VAT fraud as an overall EU priority.

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The critical conditions for success

The importance of indirect tax has increased over the last couple of years. While the rates for direct tax, corporate income tax, are decreasing, the rates for indirect tax keep rising. At multinational companies we’re easily talking about amounts of over 5 billion euros of indirect tax flowing through the books.

According to big4 surveys, the related control mechanisms are still inadequate. Not only can an error in the accounts lead to major additional tax assessments and substantial penalties, with amounts like these, it can be devastating for the reputation of a listed company. We are talking about extremely large amounts of money that lack appropriate control, but because KPIs have never been developed for this particular purpose, the risks remain outside the CFO’s field of view.

The Indirect Tax Function is aware of the fact that it is understaffed and that budget is too limited to optimally execute its tasks, but they often don’t know how to change this and get it on the agenda of the CFO.

It’s essential that change comes from the organization itself. An advisor can repeat this over and over, but if it isn’t carried out within the organization, by the people who actually have to work with it, nothing will change. And that deadlock must be broken.

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The Governments of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar (status unknown due to GCC politics/friction), Saudi Arabia and the United Arab Emirates that make up GCC – are committed to form a common framework for the introduction of value added tax (VAT) in the region. In order to achieve conformity within the GCC, it is anticipated that the six member states will all aim for implementation of VAT during the period commencing 1 January 2018 or by the end of 2018.

VAT as a process will affect many aspects of businesses operating in the GCC and will require significant time to plan, and integrate into existing processes. The objectives:

To be ready in time and a need of an effective and efficient work process between Tax function, IT function and its third party consultants

To optimize its VAT deduction and to automate this VAT process as much as possible in SAP

Based on above objectives the PDF document ‘More detailed description of Work in booklet’ [see link below] established the scope, schedule and means of initiating the work to be performed by the service provider and describes or references the specifications, instructions, standards, and other documents, which the service provider shall satisfy or adhere to in the performance of the work.

The KEY Group is supporting one of the largest multinationals with the setup of the GCC VAT rules in SAP itself

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Many countries nowadays implement the BEPS recommendations such as the ‘master’ and ‘local’ file and the ‘Country-by-Country’ report. In general, this not only leads to an aggravation of Transfer Pricing (hereafter: TP) compliance activities, but also results in the potential discovery of errors that were previously undetectable. Indeed, TP processes are generally not (yet) automated and analysis activities regarding TP are primarily executed manually.

This situation makes it challenging to have all relevant tax data provided in time. This applies to both the collection of the required source data, as well as the TP analysis itself. Often, the supplied formats and templates are unusable or have to be ‘manually’ modified in Excel in order to be used.

The current trend is that increasingly more detailed information is necessary for specific products or services; ranging from who the order was placed by to details about the applied margins for service – and goods transactions and the conditions under which these took place. Timely access to such source data has thus become even more important.

This is also the ‘overlap’ with data required for the indirect tax function. Cross-border intercompany transactions form a risk area that will be included in the VAT risk matrix – risks that exceed the risk appetite – by every multinational and that requires efficient monitoring and checks.

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In an increasing number of countries, laws and regulations are established that force companies to be transparent with regard to their handling of tax risks, (fiscal) risk management, risk appetite – also in relation to tax planning – and the way of dealing with tax authorities.

This concerns the actual fiscal management, including the way in which the company makes tax decisions, for instance regarding distributed information about the systems and the means used for effective monitoring of fiscal risks.

The Finance Bill, that was established in 2016 by the United Kingdom, forces the Board of Directors of British multinationals not only to compose a tax strategy, but also to publish it. An important new aspect of this Finance Bill is that it obliges one person within the Board of Directors to be assigned the responsibility for the tax strategy.

The power of this legislation resides in the fact that it forces the Board of Directors to actually determine a position regarding the company’s tax morality. This is recorded in a public statement, which makes it an important criterion in measurement and evaluation of the performance of the Board of Directors itself (fiscal KPI).

Supervisory bodies such as the Supervisory Board (and auditors?) will have to evaluate whether the board indeed conforms to the formulated fiscal norm.

Moreover, as appears from the parliamentary history, it is expected that companies that have not published their business strategy are more likely to accept a higher risk appetite with regard to tax risks, compared to companies that have defined and formally published a strategy, both internally and externally.

There is a clear difference between this new legislation and existing initiatives such as the Senior Accounting Officer (SAO) regime in the UK. Whereas SAO is aimed at adequate tax accounting specifically, the new legislation goes beyond the SAO because it requires companies to provide insight into the business strategy with regard to taxes.

We think that this type of legislation realizes the objective measurability of the ‘Tone at the top’ in the fiscal domain. Without ownership and active involvement of the Board of Directors, the realization of vast changes or large investments is a hopeless mission when coming from change management.

By placing the responsibility for the execution of the fiscal strategy on the Board of Directors, the tax division will receive the tools required for adequate execution of its function – mandate, resources, budget etc. – much faster. This will be amplified when signals from external sources – the auditor and the tax authorities – that promote prioritizing of taxes, also reach the Board of Directors.

The assignment of accountability, the composition and publication of the tax strategy would be an improvement of the current ‘Horizontal Monitoring’ policy in the Netherlands, as it brings the fiscal responsibility to the Board of Directors.

In practice, the Horizontal Monitoring relies too much on the relation between the Taxpayer coordinator (account manager) of the Dutch tax authorities and the Head of tax of the company.

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A partnership is closed between the Key Group, SNI and the international operating SAP consultancy firm ‘ConVista Consulting’ with offices amongst others in Madrid and Barcelona. Key Group and SNI operate from Netherlands, Poland and Turkey.

Who we are

In order to establish synergies to support business SAP challenges of our clients we have setup a joint venture initiative in the past. Tax SAP experts – KEY Group and Phenix Consulting – developing together with SNI a global development partner of SAP and leading software company in the area of e-invoice, e-bookkeeping, e-archive, e-ticket.

SNI’s core business is to provide SAP certified add-ons for legal compliance to a large number of global well-known companies. We have therefore access in-house to senior Tax SAP experts working together with SAP experts (functional and technical). That means our turnaround time is fast and our quality is very high.

A partnership is closed with the international operating SAP consultancy firm ‘ConVista Consulting‘ with offices amongst others in Madrid and Barcelona. Our partnership relates to distribution, implementation and maintenance support (Spanish language) for our SAP SII add-on solution for Spain.

ConVista is an experienced consulting firm with a large track record in the design and installation of financials & treasury applications with SAP. We offer comprehensive IT consulting services complemented by custom software development. ConVista provides a complete service offering from a single source. Streamlined processes, a higher degree of automation and shorter project durations serve as indicators for improved efficiency. Expertise in process, technology and methodology form the fundamental components of our work. We combine long-lasting experience in the implementation and delivery of large programs with in-depth knowledge of treasury applications from SAP.

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The term materiality has many meanings and definitions. Boundaries of materiality are primarily determined based on personal estimations. This can be estimations by auditors, risk management departments, company directors, etc.

The term materiality, used as a quantitative norm, then serves as an approval boundary. Evidently, the materiality used to determine the tax risk appetite of businesses is significantly lower than the materiality used by the external auditor in the annual audit.

The external auditor’s task is only to provide an opinion whether the annual accounts provide a true and fair representation of the company’s affairs. He or she is not asked to provide a statement regarding the accuracy or the acceptability of the submitted return for corporate tax, income tax, VAT etc.

The examples of tax situations listed below should, however, also receive full attention from auditors. These stock market listed companies have after all, been obliged based on the SEC rules to report their risks to their investors:

Google avoided €227 million in taxes in Italy. Google paid £130 million to the British tax authorities and agreed to pay higher taxes in the future. In France, the tax authorities demanded €1.6 billion from Google.

Apple paid €318 million as a settlement to the Italian tax authorities after a two-year fraud investigation. Apple missed a deadline to pay €13 million in taxes to Irish authorities in the context of state aid. Due to the special treatment given by the Irish government, the effective tax rate was just 0,05%.

Facebook (FB, Tech30) disclosed that the IRS conducted an investigation into the way it moved assets to an Irish subsidiary to avoid higher taxes. According to Facebook’s SEC filing, the amount totals $3 – $5 billion, plus interest.

Coca-Cola was found to to owe the US tax authorities $3.3 billion, plus interest, based on an audit by the IRS. Profits were incorrectly recognized in foreign countries, rather than the US.

In case these tax-related issues are considered individually per county and per company, it could be put into question whether these matters are also material for the auditor. Notably, the media also discuss the reputation of these companies. Any potential reputational damage and/or fiscal uncertainty might impact not only the share price but also external relations including that with the tax authorities.

The loss of tax income due to the movement of assets to low tax rate jurisdictions is conservatively estimated to total between $100 and $240 billion.

The amount of media attention, public indignation and political reactions these cases have received – including for instance that of US senator and (former) presidential candidate Bernie Saunders – emphasize the differences in tax morality. Why should ordinary citizens comply with tax obligations, while multinationals or soccer players are attempting to avoid paying a ‘fair share’ of taxes by means of tax-saving structures? Both media and politics have given a great deal of attention to cases such as the ‘Panama Papers’, ‘Lux Leaks’, ‘The Netherlands Tax Haven’ and ‘Football Leaks’.

In the context of an investigation regarding state aid, the European Commission states that providing tax rulings (advance pricing agreements; APA’s) should not result in situations in which some taxpayers pay less than other taxpayers under the same circumstances.

As a result of the Panama Papers, many Corporate Service Providers, shell corporations and advisors are interrogated by the Dutch parliament with regard to tax avoidance and tax evasion. These are companies without any significant assets or activities in the Netherlands that solely serve as a vehicle for shifting interest and royalties within international companies. Due to the application of tax treaties, this construction results in a significantly lower corporate taxes.

During his presidential campaign in 2008 Barack Obama illustrated the issue:

“There’s a building in the Cayman Islands that houses supposedly 12,000 U.S.-based corporations. That’s either the biggest building in the world or the biggest tax scam in the world, and we know which one it is.”

Evidently, we’ve entered a broader discussion, reaching beyond the question of what is tenable based on fiscal laws and regulations. Beside financial risks – that can be material – it concerns reputational damage, which can, as previously mentioned, negatively affect share prices.

Business operations can thus be fiscally appropriate, complying with tax laws and regulations, yet deemed unacceptable according to societal norms. This is a relatively new phenomenon in terms of reputational risks that affects the risk management from the overarching ‘business control framework’.

Questions that need to be asked include for instance: does the current business model still fit the ‘reconsidered’ business strategy?

In terms of tax revenues, a global trend is emerging shifting from direct to indirect taxes. The rates for VAT are increasing, whereas the rates for corporate tax are decreasing. An average multinational has over €5 billion in indirect tax flowing through the business. A mistake of one percent can make the difference between profit or loss. This is material, also for an auditor.

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Tax moral is shifting. More often what is (still) legally allowed may not automatically be accepted by the public opinion. Reputational damage is imminent.

Both on direct and indirect taxation the tax authorities have set their priorities. The tax authorities not only want to receive more tax data, but also faster and more often. In addition, there is a tendency to allocate the ultimate tax responsibility at the highest level in a company. Since last year in the United Kingdom the Board of Directors has to sign off the company’s tax strategy and also publish the strategy externally.

Tax departments and the external auditors face due to these 2 tendencies new obligations. These tendencies could however also support change.

The new data requirements of the tax authorities have to be properly assessed and interpreted from a tax risk management perspective to see whether the data requested contain any uneforeseen and major tax risks. The outcome of such an exercise could also make clear that the company has to reorganize its business and tax processes.

When all tax disciplines (e.g. TP, indirect tax; etc.) work together a joint responsibility for the overall tax affairs of a company could be established. That might facilitate the buy-in for tax investments.

When successful tax can take the place it deserves: an important part of a company’s business strategy.

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Categories

To speed up the joint processing and analysis of data within Eurofisc, the Commission is currently developing TNA software for voluntary use by the Member States as of 2018.In order to maximise TNA’s potential to identify fraudulent networks across the whole EU, Regulation (EU) No 904/2010 would make clearer provision for the joint processing and analysis of […]

According to the Commission's proposals, VAT will now be charged on cross-border trade between businesses. Currently, this type of trade is exempt from VAT, providing an easy loophole for unscrupulous companies to collect VAT and then vanish without remitting the money to the government.It will be simpler for companies that sell cross-border to deal wi […]

The fierce debate on a fair distribution of tax revenues by governments has reached new heights. Tax shift due to risk allocation of transactions to low tax rate countries and even globalization itself are under political discussion.Protectionism is an important part of the strategic objectives of certain governments. Additionally, the discussion concerning […]

Tax authorities are besides optimizing traditional tax reporting systems increasingly implementing in addition electronic (almost) 'real-time' transaction reporting systems. It is expected that tax authorities due to technological innovations become increasingly better and faster in executing their tax audit.Complementary to the existing and more t […]

The critical conditions for successThe importance of indirect tax has increased over the last couple of years. While the rates for direct tax, corporate income tax, are decreasing, the rates for indirect tax keep rising. At multinational companies we’re easily talking about amounts of over 5 billion euros of indirect tax flowing through the books.According t […]

The Governments of the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Oman, Qatar (status unknown due to GCC politics/friction), Saudi Arabia and the United Arab Emirates that make up GCC - are committed to form a common framework for the introduction of value added tax (VAT) in the region. In order to achieve conformity within the GCC, it is anticipated […]

SNI SAP-ZUGFERD is a SAP certified SAP add-on enabling electronic invoice exchange including structured data in an efficient way. ZUGFeRD is an abbreviate for »Zentraler User Guide des Forum elektronische Rechnung Deutschland«. It is a new invoicing standard that will play a major role in efficient and effective electronic invoicing. ZUGFeRD invoices carry b […]

Many countries nowadays implement the BEPS recommendations such as the ‘master’ and ‘local’ file and the ‘Country-by-Country’ report. In general, this not only leads to an aggravation of Transfer Pricing (hereafter: TP) compliance activities, but also results in the potential discovery of errors that were previously undetectable. Indeed, TP processes are gen […]

In an increasing number of countries, laws and regulations are established that force companies to be transparent with regard to their handling of tax risks, (fiscal) risk management, risk appetite – also in relation to tax planning – and the way of dealing with tax authorities.This concerns the actual fiscal management, including the way in which the compan […]

A partnership is closed between the Key Group, SNI and the international operating SAP consultancy firm 'ConVista Consulting' with offices amongst others in Madrid and Barcelona. Key Group and SNI operate from Netherlands, Poland and Turkey.Who we areIn order to establish synergies to support business SAP challenges of our clients we have setup a j […]

The term materiality has many meanings and definitions. Boundaries of materiality are primarily determined based on personal estimations. This can be estimations by auditors, risk management departments, company directors, etc.The term materiality, used as a quantitative norm, then serves as an approval boundary. Evidently, the materiality used to determine […]

Tax moral is shifting. More often what is (still) legally allowed may not automatically be accepted by the public opinion. Reputational damage is imminent.Both on direct and indirect taxation the tax authorities have set their priorities. The tax authorities not only want to receive more tax data, but also faster and more often. In addition, there is a tende […]

We offer a new SAP add-on solution that creates automatically the VAT Smartform from SAP. When our SAF-T SAP add-on solution has been purchased this additional functionality will be managed under SAF-T cockpit as a different report.Companies selling across European Union borders have to submit EC Sales List (ESL). This should contain the details of sales or […]

In Spain a new VAT reporting system will enter into force on the 1st of July 2017. The new Spanish requirements will have a huge impact on many (multi)nationals that run SAP. SAP add on for SIIThe SAP add-on is based on the selection of the VAT relevant transactions from the SAP ledgers. This can be done manually with a new SAP transaction or in an automated […]

SII (“Suministro Inmediato de Información”) in Spain is about changing the current VAT management system which has been in place for 30 years, introducing a new bookkeeping system for VAT on the AEAT online system, by providing all billing records virtually immediately. The new Immediate Supply of Information accelerates the gap between recording or booking […]

Tax authorities around the world want to receive more frequent and faster tax relevant data for e-audit purposes to analyse Corporate Income Tax (CIT) and VAT positions taken to combat VAT fraud and to determine whether actually a fair share is paid (Base Erosion and Profit Shifting: 'OECD's BEPS').More countries will therefore move to data re […]

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The Governments of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar (status unknown due to GCC politics/friction), Saudi Arabia and the United Arab Emirates that make up GCC – are committed to form a common framework for the introduction of value added tax (VAT) in the region. In order to achieve conformity within … Continue reading Being re […]

A partnership is closed between the Key Group, SNI and the international operating SAP consultancy firm ‘ConVista Consulting’ with offices amongst others in Madrid and Barcelona. Key Group and SNI operate from Netherlands, Poland and Turkey. Who we are In order to establish synergies to support business SAP challenges of our clients we have setup … Continue […]

The term materiality has many meanings and definitions. Boundaries of materiality are primarily determined based on personal estimations. This can be estimations by auditors, risk management departments, company directors, etc. The term materiality, used as a quantitative norm, then serves as an approval boundary. Evidently, the materiality used to determine […]

We offer a new SAP add-on solution that creates automatically the VAT Smartform from SAP. When our SAF-T SAP add-on solution has been purchased this additional functionality will be managed under SAF-T cockpit as a different report. Companies selling across European Union borders have to submit EC Sales List (ESL). This should contain the details … Continue […]

In Spain a new VAT reporting system will enter into force on the 1st of July 2017. The new Spanish requirements will have a huge impact on many (multi)nationals that run SAP as standard SAP will not provide an E2E solution. SAP add on for SII The SAP add-on is based on the selection of … Continue reading In Spain on 1 July 2017: immediate supply of Informati […]

SII (“Suministro Inmediato de Información”) in Spain is about changing the current VAT management system which has been in place for 30 years, introducing a new bookkeeping system for VAT on the AEAT online system, by providing all billing records virtually immediately. The new Immediate Supply of Information accelerates the gap between recording or booking […]

Tax authorities around the world want to receive more frequent and faster tax relevant data for e-audit purposes to analyse Corporate Income Tax (CIT) and VAT positions taken to combat VAT fraud and to determine whether actually a fair share is paid (Base Erosion and Profit Shifting: ‘OECD’s BEPS’). More countries will therefore move to … Continue reading A […]

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Tax Management Consultancy is designed to keep readers abreast of current developments, but it is a general guide only and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains, or for any errors or omissions